Part 3/5—Interview: co-author Roy Levien; The KeyStone Advantage: “This is an important book that should be read by anyone interested in the dynamics of modern business.” — Bill Gates

On Wednesday, I began my discussion with Roy Levien. On Thursday, we continued the interview. Here is part 3.

I would like to hear your opinions in this forum or send me an e-mail at sibaraki@cips.ca. Enjoy! .... From Stephen Ibaraki, I.S.P.

Q: You have particular views on outsourcing, innovation and its implications; and also about the origin of ideas. Can you elaborate?

A: Ideas come from people, not firms. Big in-house R&D is largely a waste of money. I've mentioned that innovation encompasses both new ideas and the combination of ideas in novel ways. Firms and networks of firms can be very effective at achieving this later kind of innovation, a process that we discuss a great deal in the book; but ideas themselves are quite different. They generally come from a very small number of individuals, often working on their own or as part of a creative team with unique interpersonal dynamics, history, and experience. Managers and corporate structure make essentially no contribution whatsoever. That's a hard pill to swallow, but most managers just come from a completely different culture and hinder rather than aid the growth and development of ideas. To the extent that the idea market can be taken out of the corporate setting and returned to people, everybody - especially those with the ideas - will benefit. Networked business ecosystems enable this process like never before, by making it easier for a product to be assembled in a distributed way from ideas, components and technologies. These may come from a wide variety of sources, even from individual or small groups outside the normal corporate structure: in short, "outsourcing" of ideas by using the network to innovate. Ironically, just as we are increasingly able to make this a reality, and transfer power for the creation of ideas to individuals, there are movements afoot to steal the rewards for those ideas from people.

Q: Can you forecast other niche winners for 2005/2006 such as Nvidia and Intuit from the past? Please provide some commentary.

A: Everybody who asks me this question wants me to say Google or EBay. But that's not how it will turn out.

EBay, maybe, if they can see themselves not as a marketplace for things, but as a platform for the exchange-mediated communities. What does that mean? It means a system for bringing people together based on something that one person can transfer to or share with others. Sounds like a marketplace, and it is, but not in the narrow way that EBay currently conceives it. The "items" could be ideas, poems, songs, dates, photos, rendezvous - anything. You can see EBay users trying to push things in this direction with some of the unusual "items" they post, but EBay has been slow to respond with any meaningful changes to the capabilities of its platform. What they need to do is refocus on the communities that grow around these exchanges and the specific features that they will need. If they succeed they would become the platform for every kind of mediated interaction between people that involves something; it's that general and it's that big. A critical piece of that is to stop thinking of themselves a website and begin building a platform that can be embedded everywhere, from phones to kiosks to coffee shops: EBay-enabling these things would enhance them in ways that make them more effective in matching people with things and with each other. I don't see this EBay-enabled world happening soon given their current course; fortunately they have the advantage of not being on Microsoft's radar, so they have time.

Google doesn't have that advantage - and they really don't get it. Charles Furguson (of Vermeer Technologies, which was sold to Microsoft in 1996 to form the foundation of some of its Web technologies, most notably FrontPage), in a great recent analysis of Google's future challenges in MIT's Technology Review summarizes their situation by saying that they "will need brilliant strategy and flawless execution simply to survive." He's right. Right now, Google is the best search engine by far, along almost every dimension; and they are establishing connections between search and all kinds of interesting directions that enhance its usefulness and power. None of that matters though if they don't work furiously to establish themselves as a keystone in the ecosystem of which search is the hub. I didn't say "search ecosystem", because that's not the point. The point is to build an "architectural empire" by defining standards, protocols, and application programming interfaces - a platform for finding things, and for all the activities and associated services and processes that accompany finding things - everywhere. Microsoft already has a headstart on a lot more of this space than Google investors seem willing to admit to themselves, and they have tremendous success at building platforms. A lot of this space is unoccupied too, but the rush is on and Microsoft is a fierce opponent, and one that is more sophisticated at this game. My money is on them.

Of course there are other, less visible firms of all sizes turning their niches into ecosystems of which they are the keystone - we can talk about them another time!